529-To-Roth IRA Rollovers: Clearing Up Confusion and False Alarms
When the “check engine” light flickers on your car’s dashboard, your instinct is to investigate the problem. Similarly, when an advisor working on a 529-to-Roth IRA rollover encounters a computer alert, it’s only natural to pause and reevaluate the situation. Such was the case in early 2025 when a financial advisor sought to transfer funds from a 529 college savings plan into a Roth IRA for a client, only to be met with a red alert on their screen. The alert suggested that the one-rollover-per-year rule might apply to the transaction. But was the warning valid? Let’s break down what happened and clear up the confusion surrounding this process.
529-To-Roth IRA: The Basics
The ability to roll over funds from a 529 college savings plan to a Roth IRA is a new option introduced by the SECURE 2.0 Act, which went into effect in 2024. While this provision is a welcome addition for many savers, it comes with several key restrictions: The Roth IRA must be in the name of the 529 beneficiary. The lifetime maximum rollover limit is $35,000 per beneficiary. The 529 plan must have been open for at least 15 years. Transfers are subject to the annual Roth IRA contribution limit (in 2025, $6,500 for individuals under age 50 and $7,500 for those 50 or older). These rules make 529-to-Roth rollovers a carefully regulated process, but when done correctly, they can provide a powerful tool for transferring unused education savings into retirement accounts.
The Red Alert: Misinterpretation of Rollover Rules
In this case, the advisor had already successfully completed a 529-to-Roth IRA rollover for a client in December 2024. When attempting another rollover for the same client in January 2025, a software warning appeared, citing the one-rollover-per-year rule.
This rule, which applies to IRA rollovers, restricts individuals to a single 60-day rollover between IRA accounts per calendar year. The computer system flagged the 529-to-Roth transaction as a potential violation of this rule. However, our interpretation is that this alarm was a false positive.
Why the One-Rollover-Per-Year Rule Doesn’t Apply
Here’s why we believe the one-rollover-per-year rule is irrelevant to 529-to-Roth IRA rollovers:
1. Direct Trustee-to-Trustee Transfers
According to the SECURE Act, a 529-to-Roth IRA transfer must be conducted as a direct trustee-to-trustee transfer. This eliminates the possibility of a 60-day rollover, as funds never touch the beneficiary's hands. Since the one-rollover-per-year rule applies exclusively to 60-day rollovers, it does not impact 529-to-Roth transactions.
2. Roth IRA Contributions, Not Rollovers
The IRS classifies funds transferred from a 529 plan to a Roth IRA as Roth IRA contributions, not rollovers. These contributions are subject to standard annual limits. For example, if $5,000 is rolled over from a 529 to a Roth IRA in 2025, the beneficiary can contribute only $1,500 more to the Roth IRA that year (assuming a $6,500 limit).
3. Terminology Confusion
The term “rollover” in this context can be misleading. While the transaction involves moving money between accounts, it functions more like a contribution than a traditional rollover. The use of this terminology may have triggered the alert on the advisor’s software, but it does not align with the actual IRS rules for 529-to-Roth transfer.
Proof That the Alarm Was a False Positive
The advisor proceeded with the rollover after verifying compliance with all 529-to-Roth requirements. The transaction went through without any issues, confirming that the one-rollover-per-year rule did not apply. This example highlights the importance of:
- Double-checking IRS rules and regulations, especially with new processes like 529-to-Roth rollovers.
- Relying on expert guidance when software systems or alerts cause unnecessary doubt.
FAQs About 529-To-Roth IRA Rollovers
Are 529-to-Roth IRA rollovers considered contributions or rollovers?
They are considered Roth IRA contributions, subject to annual contribution limits.
What happens if a 529 plan has been open for less than 15 years?
If the 529 plan hasn’t met the 15-year minimum requirement, the funds are ineligible for rollover.
Can you roll over more than $35,000 from a 529 to a Roth IRA?
No, the lifetime maximum for 529-to-Roth IRA rollovers is $35,000 per beneficiary.
Does a 529-to-Roth IRA transfer affect my ability to contribute to a Roth IRA?
Yes, any amount rolled over reduces the beneficiary’s annual Roth IRA contribution limit.
Do the one-rollover-per-year rules apply to these transactions?
No, because 529-to-Roth rollovers are direct trustee-to-trustee transfers and are classified as contributions.
What happens if a 529-to-Roth rollover exceeds the annual Roth contribution limit?
Exceeding the limit could result in penalties. Work closely with a financial advisor to avoid this issue.
In Summary
The 529-to-Roth IRA rollover provision is an excellent opportunity for families to repurpose unused education savings. However, navigating the rules and restrictions can be tricky, as evidenced by the false alarm in this case. If you encounter similar warnings or uncertainty, remember: Verify the rules with trusted IRS sources or financial experts. Understand the classification of 529-to-Roth transactions as contributions, not rollovers. Seek guidance when dealing with new or unclear retirement account provisions. With careful planning and attention to detail, you can confidently maximize the benefits of this SECURE 2.0 provision while avoiding unnecessary alarms.
Need help? Contact a Certified Financial Planner for a free 20 minute call.
Source: Andy Ives, CFP®, AIF®
IRA Analyst
Ed Slott and Company, LLC
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.